A Federal Estate Tax Lien arises immediately upon the death of an individual.
This lien is a tax on the right to transfer property at death. Unlike other liens, a Federal Estate Tax Lien can be "hidden" and it can impact real property without having to be recorded!
This tax may be owed if a decedent’s “Gross Estate” exceeds certain limits which are established in the tax code. These limits can vary depending on the date of death. The “Gross Estate” may include not only the decedent’s probate estate, but also insurance benefits, trust estates, limited partnership interests and so on.
Q) I inherited property which was distributed to me by deed over a year ago. Now, in preparing to sell the property, a Federal Estate Tax Lien has just recorded against the Estate of my deceased relative. The Federal Estate Tax Lien was then reflected as a Title Exception in the Preliminary Report. Can the lien be ignored?
A) No, the Federal Estate Tax Lien became a lien on the property as of the date of the death of the Decedent. It will be necessary to work with the Attorney and or CPA for the Estate to obtain a certificate of release from the IRS.
Federal Estate Taxes affect assets transferred from the Estate of the Decedent. Interestingly, in 2010, the Federal Estate Tax Law expired and there were no such tax obligations at all during that period. Congress then enacted new Federal Estate Tax and Gift Tax legislation which provided that for the 2 year period of 2011 and 2012, the Federal Estate Tax would apply to any estate with a value in excess of $5 Million in 2011; and, in excess of $5,012,000 for 2012. Any estate with a value under the current $5,012,000 is currently exempt from federal tax. The current Gift Tax rules permit an individual to gift any person up to $13,000 per year without reporting.
A comprehensive discussion of the Federal Estate and Gift Tax law and procedures may be found in the IRS link: http://www.irs.gov/irm/part5/irm_05-005-008.html.
If you are dealing with such an estate don’t get hit with these “hidden liens.” For more information on how to obtain a Certificate from the IRS discharging property, please contact your CPA or attorney.
For additional information on the impact of these liens on title and what is required to insure a new transaction, please contact my favorite title company CornerStone Title.
Sources: Mike Dullea, West Region UW Counsel, TRGC
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